EWZ rose by 10.3% over 23 days, or a +163% annual rate. The options produced a 59.4% loss on debit for a -943% annual rate.
The exchange-traded fund that tracks the Brazilian stock market, the iShares MSCI Brazil Capped Index Fund (EWZ), closed below its 20-day price channel on Monday, sending a bear signal with high historical odds of success, suggesting a directional trade.
[Economy of Brazil in Wikipedia]
I shall use the OCT series of options, which trades for the last time 24 days hence, on Oct. 16.
EWZ has completed six bear signals in the past year. Four of them were successful, yielding on average 9.4% over 53 days. The two unsuccessful signals lost 3.2% over 16 days, on average.
The bear signal success rate in 66.7%.
Brazilian stocks began their present sharp decline a year ago as yet another leg in a downward trajectory that began in 2011.
Click on chart to enlarge.
|EWZ at 11:24 a.m. New York time, 90 days 4-hour bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money
The premium is $0.71, which is 24% of the width of the position’s wing. The stock at the time of purchase was priced at $21.54.
The risk/reward ratio is 3.2:1.
Decision for My Account
I've opened a position in EWZ as described above.
-- Tim Bovee, Portland, Oregon, Sept. 22, 2015
My volatility trading rules can be read here.
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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
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